The Federal Reserve either will or will not announce a rate hike at its December 16 meeting.
This is the only thing we know for sure.
Back in early November following a blowout October jobs report, Chris Rupkey, an economist at MUFG Union Bank, said that the Fed raising rates for the first time in nine years at its December meeting was a “done deal.”
But after manufacturing data on Tuesday indicated that American manufacturing is indeed in recession, this “done deal” is no longer the case.
“Net, net, the economy is sputtering and the growth engines for factory output have gone into reverse in November which takes a little certainty out of the Fed’s December liftoff,” Rupkey wrote in an email on Tuesday.
“It is no longer a done deal.”
The Fed has clutched victory from the jaws of defeat many times on the road to normalizing rates. Or something like that. They thought the economy might be slowing, more than for just cold winter weather reasons earlier this year and did not hike in March or June. China and global financial market turbulence took a September rate hike off the table. It would not be much of a strain on the imagination to think Fed Chair Yellen might get cold feet again based on this news from purchasing managers engaged in manufacturing in the USA. Stay tuned. We still expect a December liftoff, but the jobs report on Friday might need to show greater strength than we were thinking earlier. The jobs report definitely takes on greater importance after today’s ISM report.
Of course, as the Fed has said time and again, its decision to raise interest rates will not be based off one data point.
And sure, manufacturing “only” accounts for around 12% of economic output.
But with an entire sector of the US economy seeing activity contract, the spotlight gets just a little bit brighter on Friday’s jobs report.